Understanding and Navigating the Process of Rejecting a Tender Offer from a Newly Private Company

Rejecting the Tender Offer of a Newly Private Company

Going public can provide numerous advantages for companies, but what happens when a company decides to go private after being publicly traded? As a shareholder in a company undergoing privatization, it’s important to understand the process and implications of rejecting a tender offer for the acquisition of your stock. This article provides insights into the reasons companies go private, the concept of tender offers, and the considerations involved in rejecting such offers.

Key Takeaways:

  • Sometimes, public companies choose to go private to increase profitability or regain corporate control.
  • Privatization involves the company buying back outstanding shares through a tender offer.
  • Rejecting a tender offer as a small shareholder is often ineffective since majority votes are required for corporate actions.
  • Large shareholders rejecting a tender offer may prevent privatization but may also trigger legal action.

When Public Companies Go Private:

  • The Sarbanes-Oxley Act has prompted many public companies to opt for privatization.
  • Reasons for going private vary, including management or private equity firm buyouts, pursuit of growth and higher profits, or disengagement from specific shareholders.
  • Privatization often saves costs associated with being publicly traded and complying with SEC regulations.

Understanding Tender Offers:

  • Tender offers are made to buy some or all of a company’s shareholders’ shares, typically at a premium.
  • Shareholders stand to gain by selling their stock if a tender offer is available.
  • While there’s no set premium, shareholders can expect around a 10% premium over market price in many cases.

Rejecting the Offer:

  • Rejecting a tender offer without a substantial block of shares is unlikely to have an impact on management decisions.
  • Holding illiquid stock can make selling more difficult as the market becomes thinner.
  • Challenging a proposed transaction in court requires reasonable grounds and financial burden rests on the dissenting shareholder.
  • Acquirers with a larger portion of outstanding stock can still force other shareholders to sell their shares.

The Bottom Line:

  • Going private is not uncommon, and shareholders have the right to accept or reject tender offers, understanding the consequences.
  • Most shareholders lack the influence to viably reject offers and may be forced to sell their shares.
  • Consulting a financial advisor or broker for guidance on specific situations is recommended.

Note: The Sarbanes-Oxley Act is not directly applicable to rejecting tender offers, but it has influenced public companies’ decisions to go private.

Websites and Online Resources:

  1. Investopedia – An authoritative source that provides comprehensive information on various financial topics, including tender offers and going private transactions. Link to Investopedia
  2. Securities and Exchange Commission (SEC) – The official website of the SEC, which offers regulatory information and resources on securities transactions, including tender offers and going private transactions. Link to SEC


  1. “Mergers, Acquisitions, and Other Restructuring Activities” by Donald DePamphilis – A comprehensive book that covers various aspects of mergers, acquisitions, and restructuring, including tender offers and going private transactions. Link to book
  2. “Tender Offers: A Guide to Buying and Selling Securities” by Dennis E. Block and William M. Savitt – This book provides insights into the legal and practical aspects of tender offers, including strategies and considerations for shareholders. Link to book

Academic Journals and Research Papers:

  1. “The Economics of Tender Offers” by Michael A. Fishman and Kathleen M. Hagerty – A research paper published in The Journal of Finance that explores the economic implications of tender offers and provides insights into shareholder decision-making. Link to paper
  2. “Going-Private Decisions and the Sarbanes-Oxley Act of 2002: A Cross-Country Analysis” by Ettore Croci and Bruno Manaresi – A scholarly article that examines the impact of the Sarbanes-Oxley Act on going-private decisions of public companies. Link to article

Reports and Studies:

  1. “Going Private and Public-to-Private Transactions: A Review of the Literature” by Meziane Lasfer – A comprehensive review of academic research and studies on going private transactions, including tender offers, providing a deeper understanding of the phenomenon. Link to report
  2. “Tender Offers in the Context of Mergers and Acquisitions” by Harvard Law School Forum on Corporate Governance and Financial Regulation – A report that discusses the legal and regulatory aspects of tender offers and their significance in the context of mergers and acquisitions. Link to report

Professional Organizations and Associations:

  1. American Bar Association (ABA) – Business Law Section – The Business Law Section of the ABA offers resources, publications, and updates related to various corporate transactions, including tender offers and going private transactions. Link to ABA Business Law Section
  2. National Association of Corporate Directors (NACD) – An organization that provides resources and guidance on corporate governance, including insights into shareholder rights and considerations in tender offer situations. Link to NACD

Understanding the Levels of American Depositary Receipts (ADRs) and Their Implications for Investors

Understanding the Different Levels of American Depositary Receipts (ADRs)

Introduction: Investors looking to diversify their portfolios with foreign securities often face obstacles when purchasing individual stocks of foreign companies. One alternative is to invest in American depositary receipts (ADRs), which are certificates representing shares of foreign company stock held in a bank within the United States and denominated in U.S. dollars. ADRs offer different levels of compliance and regulatory oversight, categorized as Level I, Level II, and Level III. This article aims to provide a clear understanding of the differences between these ADR levels and their implications for investors.

  1. Level I ADRs:
  • Sponsored ADRs listed as Level I issues require the least amount of compliance and regulatory oversight.
  • Investments are originated by the foreign company itself.
  • A Level I ADR offering requires filing an F-6 registration statement, but the company is exempt from full Securities and Exchange Commission (SEC) reporting requirements.
  • Level I ADRs are only traded on the over-the-counter market.
  1. Level II ADRs:
  • Foreign companies issuing Level II ADRs must fulfill all registration and reporting requirements imposed by the SEC.
  • This includes submitting the company’s F-6 registration statement, SEC Form 20-F, and annual financial reports prepared in accordance with either generally accepted accounting principles (GAAP) or international financial reporting standards.
  • Compliance with the Sarbanes-Oxley Act, which requires accounting and financial disclosure, is also mandatory for Level II ADRs.
  • Level II ADRs can be listed on major U.S. stock exchanges such as the New York Stock Exchange or the Nasdaq Stock Market.
  • Issuing Level II ADRs provides the foreign company with greater exposure in the United States without needing to complete a public offering.
  1. Level III ADRs:
  • Level III ADRs are similar to Level II issues in terms of reporting requirements and listing on U.S. exchanges.
  • Foreign companies issuing Level III ADRs can raise capital through a public offering of the ADR within the United States.
  • This additional step requires filing a Form F-1 with the SEC to properly register the public offering.

Key Takeaways:

  • ADRs represent shares of foreign company stock held in a U.S. bank and denominated in U.S. dollars.
  • Most ADRs are sponsored, meaning the foreign company is involved in creating the investment for U.S. investors.
  • Level I ADRs have the least compliance and regulatory oversight, while Level III ADRs have the most.
  • Level II ADRs fulfill all SEC registration and reporting requirements and can be listed on major U.S. stock exchanges.
  • The Sarbanes-Oxley Act applies to Level II and Level III ADRs, ensuring accounting and financial disclosure standards are met.

Note: Tables and additional formatting can be used to present any relevant data or comparisons between the different ADR levels, depending on the available information and specific requirements of the reader.

Further Resources:

Websites and Online Resources:

  • Securities and Exchange Commission (SEC): The official website of the SEC provides detailed information on ADR regulations, registration requirements, and filing procedures. Visit their ADR section for comprehensive guidance. SEC ADR Information
  • American Depositary Receipt Association (ADRA): ADRA is a professional organization dedicated to promoting and facilitating the use of ADRs. Their website offers resources, educational materials, and industry insights for investors interested in ADRs. ADRA Website


  • “American Depositary Receipts: An International Guide for Investors” by Michel-Henry Bouchet: This comprehensive guide explores various aspects of ADRs, including their types, benefits, risks, and regulatory frameworks. Amazon Link
  • “The Handbook of Depositary Receipts” by Brian R. Bruce: This book offers a comprehensive overview of depositary receipts, including ADRs, their history, mechanics, and investment considerations. Amazon Link

Academic Journals and Research Papers:

  • “The Impact of ADR Listings on Stock Liquidity: Evidence from Latin American Firms” by G. Andrew Karolyi and Rene M. Stulz: This research paper analyzes the impact of ADR listings on the liquidity of Latin American firms and provides valuable insights into the benefits and challenges of ADR investments. Link to Paper
  • “The Price and Performance of ADR IPOs” by Reena Aggarwal and Sandeep Dahiya: This study examines the price and performance of ADR initial public offerings (IPOs) and provides insights into the dynamics of ADR markets. Link to Paper

Reports and Studies:

  • “ADRs: The Benefits of American Depositary Receipts” by J.P. Morgan: This report provides an overview of ADRs, including their benefits, risks, and investment considerations. It also offers insights into the ADR market and trends. Link to Report
  • “The 2019 Depositary Receipts Yearbook” by BNY Mellon: This comprehensive yearbook covers various aspects of depositary receipts, including ADRs, their issuance, trading, and market trends. Link to Yearbook

Professional Organizations and Associations:

  • CFA Institute: The CFA Institute offers resources and educational materials related to ADRs and international investing. They provide insights into valuation, risk management, and best practices for analyzing ADR investments. CFA Institute ADR Resources
  • International Securities Association for Institutional Trade Communication (ISITC): ISITC is an industry association that focuses on standardizing operational processes in the financial services industry. Their website offers resources and insights on ADR settlement and post-trade processing. ISITC Website